The JBIC, Japan's huge bilateral agency emerges as the world-largest source of development finance that may affect lives of billions of people in the developing countries.

By Hisako Motoyama, Public Fincance & Environment Program

Japan, the world's top aid donor, recently established one of today's most significant development institutions, one that has the potential to affect the lives of billions of people in the developing countries. Although it is a bilateral agency, the Japan Bank of International Cooperation (JBIC) is the world's largest source of development finance, with an annual budget of over 3 trillion yen (approx. US 27 billion dollars), making it larger than the World Bank. This giant came into existence in October 1999 by the strange marriage between an export credit agency (Export-Import Bank of Japan - JEXIM) and an aid agency (Japan's Overseas Economic Cooperation Fund - OECF).

The JEXIM itself was already a giant among the world's export credit agencies (ECAs), and with an annual budget of around $18 billion its influence in private sector financing is significant, particularly in Asia. It provides loans and guarantees to support Japanese corporate activities overseas such as foreign investment, exports of plant/equipment and natural resource exploitation. The OECF, on the other hand, is one of two major agencies implementing Japan's official development assistance (ODA) program. With annual budget of about $8 billion, it is the largest bilateral aid agency in the world -- if loans can be considered as "aid".

The merger was first designed in 1995 as a part of a governmental restructuring plan that resulted in a decrease in the number of governmental agencies. There were no pressing functional needs or positive reasons for the merger, and except for the fact that both agencies did similar types of activities -- providing loans for developing countries -- the merger is generally considered to bring about little change in the two agencies' operations.

The growing significance of JBIC in Asia

However, there are many reasons for NGOs to strengthen monitoring and advocacy targeting the JBIC. The roles of the JBIC are growing in significance, especially after the Asian economic crisis in 1997. Japan has provided a large amount of aid in assistance programs through the JBIC to Asian countries hit by the recent crisis, including the $30 billion Miyazawa Initiatives.

In particularly, the expanding roles of the former JEXIM, which accounts for two-thirds of the entire JBIC budget and staff, deserve attention. While ODA loans are mainly provided for social development programs, JEXIM's investment and export loans for Japanese business are important sources of funds for large scale development projects in developing countries. Also it actively finances structural/sectoral adjustment programs by way of untied loans, which accounted for $13 billion in 1998. As the JEXIM's primary purpose was to support Japanese business, such financing activities are thus explained: they promote economic restructuring and sustain the present international financial architecture, helping Japanese corporations expand their businesses overseas, and conveniently, can also be considered as "international cooperation".

This appears to be the actual rationale behind merging two agencies under the label of international cooperation. People around the world should know that the JBIC will play a leading role in economic development and international finance in developing countries, particularly in Asia, and that at least the major part of JBIC activities are not directly intended for the well-being of people. As there is no clear difference in JBIC's logic, between international cooperation on one hand, and benefits for Japanese business on the other, there are great risks of the misuse of public money, if JBIC operates without guarantees for transparency and good social, environmental and information policies.

NGO Advocacy points

The merger presents a good opportunity for NGOs and people around the world to urge the JBIC to be more transparent and accountable as the world-biggest financing institution. The JEXIM had no environmental guidelines until they prepared in September 1999, with many shortages and loopholes, and lower standards than those of the OECF. As for transparency and consultation with civil society, both the JEXIM and the OECF fall short of international best practices.

Since before the merger, NGOs have focused on demanding unified and rigorous environmental guidelines to cover operations of both former agencies, JEXIM and OECF. Pressured by several members of the national Diet, the JBIC promised last year to prepare basically unified environmental guidelines that "comply with international standards". It was also promised that JBIC would ensure transparency and have public consultations with NGOs in preparing the guidelines.

Despite the promises, the process is now delayed and appears to be a lot of resistance inside the JBIC to be open to civil society. We Japanese NGOs will start official consultations with the JBIC soon and intend to make substantial steps forward this year. Internationally, there are growing concerns over the social and environmental impacts of ECA financing, and progress towards common environmental standards for ECAs of OECD countries is expected. Finally, the participation of NGOs in recipient counties in these debates is essential and should be promoted, as the people of countries receiving JBIC funds are inevitably some of the most important stakeholders of JBIC activities.

(Written as an article for "Watershed" March 2000)